Thursday, January 10, 2013

GoldMoney Mulls Bitcoin Integration – Why Your Gold Is Not Safe There

By Trace Mayer J.D.Being a GoldMoney customer and Bitcoin advocate, on 9 Jan 2013 I received an interesting email from GoldMoney that has a surprisingly positive portent. First, it announced the new vault in Singapore (Whoop dee doo, how innovative!) and second it requested customer feedback via the anonymous Annual Survey for 2013.Near the end of the survey I came across significant areas regarding Bitcoin and its potential integration with GoldMoney.

Since I started publicly recommending Bitcoin in 2010 and have been a GoldMoney supporter longer therefore it makes sense that they may be reading my articles.

THE GOLDMONEY ANNUAL SURVEY

The annual survey requests:

Please take the chance to tell us what you expect from us in the future by clicking on the following link to access the GoldMoney Annual Survey 2013. It takes just 3-5 minutes to complete and will be accessible until 31 January 2013. …

12. How much are you interested in using Bitcoin for online transactions? …

13. Please specify below which Bitcoin functionality you would like to use:

Use Bitcoin to buy precious metals with Goldmoney

Use GoldMoney to store Bitcoins in a secure wallet

Other

On 20 Dec 2011 I received an ominous email from GoldMoney announcing the economic censorship of the payment mechanism.

Due to this growing trend of regulation we have decided to suspend the following services until further notice with an effective date of the 21st January 2012:

* The facility to make and receive payments in precious metals to or from other GoldMoney Full Holding customers.

* The facility to convert directly between the various currencies.

To put it simply: Your gold, silver, platinum and palladium held via GoldMoney can be frozen or confiscated.

WHY YOUR ASSETS ARE NOT SAFE AT GOLDMONEY UNTIL THEY ALLOW BITCOIN WITHDRAWALS

Based on the survey requests it seems obvious that GoldMoney is completely missing the point of Bitcoin. Bitcoin is the first digital currency that is censorship-resistant. In other words, if for whatever reason, justified or unjustified, some petulant brat in a costume provides a sheet of paper with an order on it to take all the gold, silver, etc. that previously was titled to you then GoldMoney will rollover and give them the gold.

To put it simply: Your gold, silver, platinum and palladium held via GoldMoney can be frozen or confiscated. However, when you properly store bitcoins, and I teach you how in The Free Bitcoin Guide, they can never be frozen or confiscated.

But if GoldMoney allowed you to buy bitcoins and withdraw them then your metals would no longer be at much risk because within about 24 hours you could exchange them into bitcoins and withdraw to a wallet. Then the value would be immune to freezing or seizing.

HOW GOLDMONEY SHOULD MOVE FORWARD

Ironically, the questions in GoldMoney’s survey imply they are looking at this issue of integrating with Bitcoin the wrong way. There is another option which would be the least expensive way to integrate Bitcoin, would add the greater value to customers and generate tremendous revenues for GoldMoney.

GoldMoney should not be seeking to bring bitcoins into GoldMoney customer’s holdings to buy metals. For several reason, GoldMoney should be looking to free customers by allowing them to withdraw bitcoins from their holdings to wallet’s outside GoldMoney’s control.

First, the customer is king and people want to be free with their money. They want the option to stand free and independent without any third-parties or middlemen between them and it. They want it to be sovereign. This is the allure of gold and the old saying, “If you don’t hold it you don’t own it.”

Not only is it the right thing to do but there is a ton of money to be made running an underground railroad from fiat currencies and over-leveraged politicized banks to non-politicized decentralized digital censorship-resistant currency. Just think if those customers, who currently hold $2.2B of assets with GoldMoney, were able to instantly buy bitcoins. A $2.2B market cap for bitcoin implies a price per bitcoin of about $200 or a gain of about 1,400% from current prices.

Second, the main issue with bitcoins for a company like GoldMoney or any bank has to do with the source of funds. GoldMoney already performs all the necessary Anti-Money Laundering and Know Your Client due diligence required by regulated financial institutions.

If GoldMoney starts off only allowing customers to buy bitcoins and withdraw bitcoins they buy from GoldMoney then they do not need to worry about the source of funds because the only way to fund the holdings is with wire transfers where GoldMoney is already incurring the AML/KYC fees. GoldMoney can acquire bitcoins from a few trusted sources, like the large exchanges, and remain within the safest legal areas without incurring any additional costs.

Third, despite gold collapsing against Bitcoin in 2012 they still remain an extremely speculative asset. Sure, they have performed extremely well but that is no guarantee of future performance. Although bitcoins, like gold, are not subject to counter-party risk the holding bitcoins is not necessarily a very safe strategy. Bitcoins could become completely worthless. After all, that is why one buys gold instead of silver; gold is the penultimate store of value.

Fourth, the payment business is heavily regulated and those regulations are constantly changing. As GoldMoney has already discovered, that industry is a real pain in the rear end because of economic censorship.

But there is one person who gets it; Erik Voorhees, who was invited in Sept. 2012 by the Brazilian Central Bank to present about Bitcoin and other attendees such as several Federal Reserve officials, the SWIFT Director of Brazil’s office, Santander, BM&F Bovespa, PNC Bank, National Bank of Canada, HSBC, and a high-level representative from Chile’s equivalent of the ACH system.

My take away from this last session was the revelation that Bitcoin eviscerates entire statutes of law. Bitcoin will result in a number of “legal impotencies,” while simultaneously offering an alternative to the business and money that is being stifled by these same laws in the normal economy.

Then in Oct 2012 the European Central Bank released a 55 page report and focused about half of it on Bitcoin. It appears that this scrappy upstart censorship-resistant digital currency is sure getting more attention than it deserves.

Fifth, bitcoins are currently legal in all countries and have not been made illegal by any. A French court has even ruled that a bank must reinstate banking services to a Bitcoin exchange after the bank froze the account because they did not want to be facilitating money laundering.

How particular businesses interact with Bitcoin can result in some interesting legal uncertainties and these likely will not be resolved for a long time. But the suggested method of moving forward for GoldMoney would not be materially different from current practices.

Allowing customers to buy bitcoins and withdraw them is not materially different from GoldMoney’s current business of allowing customers to buy gold and take physical possession. After all, the customers own title to the gold and can take possession at will (perhaps to only a specific address previously authorized for the account via a signed document sent by the customer to prevent any potential fraud, compromise, etc.) and so likewise would presumably own title to the bitcoins and should be able to take possession at will.

Sixth, once customers have bitcoins in their possession then they can avail themselves of the Bitcoin payment mechanisms. Just like Erik explained to the Federal Reserve attorney presenting on Dodd-Frank bill Section 1037 so likewise this strategy would allow GoldMoney to disentangle from the payments related regulation.

Think of all the attorneys that will be out of work when GoldMoney no longer needs to worry about thousands of pages of relevant law in many different countries that is constantly changing.

CONCLUSION – WHAT YOU CAN DO

So, this email requesting input for the Annual Survey was very encouraging. If GoldMoney integrated with Bitcoin then it would likely be the ultimate tool for standing free and independent with your money. Plus, it would give them a competitive advantage over BullionVault and its other competitors.

Really, you would think anyone who claims to be an expert in money and currency would immediately see the potential synergies and therefore it is really surprising that GoldMoney has not already integrated with Bitcoin.

What can you do? Well, the Annual Survey is anonymous, takes about 3-5 minutes to complete and does not close until 31 JAN 2013. So, I would recommend you complete the survey along with the suggestion to “Integrate with bitcoin and begin by allowing me to buy bitcoins and withdraw them to a wallet.”

If you are not currently a GoldMoney customer then I suppose you can still complete the Annual Survey because it is anonymous. Plus, you can always open a GoldMoney holding for free and send the customer support a question about when they will integrate with Bitcoins.

There are no servers controlling the algorithm. It's a protocol, not a particular program, so it can run anywhere in a decentralized manner. The protocol or algorithm detects tampering, is mathematically sound, and has not been broken. Computers themselves can be hacked and people can steal your bitcoins that way, but that is a problem shared by all electronic systems. Your dollars are already constantly exposed to this threat.

You can store bitcoins on your own computer that's *completely disconnected* from the network and is considered the safest way to store your wallet electronically, though inconvenient (you would need a second computer and physically transfer via usb stick to your internet connected machine to exchange with others)

Why would the government create a competing Bitcoin-like currency when what makes it useful undermines the government? Whatever it creates will be anything but bitcoin-like.

As far as value goes, well, for commodities, their value is whatever people find useful in them. It's possible for some people to see no value whatsoever in some metals. Consider an alien species visiting earth who finds no use whatsoever for gold, or platinum or iron, etc, but finds value in certain biological or genetic material. And I say this as a fan and consumer of precious metals. Remember, value is subjective (from the guy who gave us the regression theorem defining the origination of money, which as I've mentioned before I believe bitcoin satisfies).

Bitcoin does have "value" from its inherent utility. So long as we have restrictive governments and state controlled money, that's were its value will come from. Now, how you quantify that--price in terms of goods or in terms of exchange rate--will fluctuate and is where subjective evaluation comes in.

"Why would the government create a competing Bitcoin-like currency when what makes it useful undermines the government? Whatever it creates will be anything but bitcoin-like."

What makes Bitcoin supposedly useful is the belief that there needs to be "enough" money to go around. But since this is bad economic thinking, governments will be able to market their Bitcoin like digital "currency" as more elastic than Bitcoin.

They'll say "there's not enough bitcoins", and those who were sold on Bitcoin will buy into it for the same reason they bought into Bitcoin.

You said:

"Remember, value is subjective (from the guy who gave us the regression theorem defining the origination of money, which as I've mentioned before I believe bitcoin satisfies).

"Bitcoin does have "value" from its inherent utility."

Value is subjective, to be sure, but NOT in the solipsist sense.

Bitcoin does not satisfy the regression theorem in the sense that matters. Were that the case, then you should be perfectly willing to use sand or excrement as money - after all, simply having faith in something as money, according to the Bitcoin adherents and the Monetarists, makes it money.

No, the regression theorem states that all money at one time was a non-money that satisfied someone's preferences AS a non-money.

The function of money is to be a medium - a go-between or conduit - of exchange. Money does this by representing the value you hope to acquire (from a future exchange) from the value you have currently given up.

The only way this can be done is if the money ITSELF has value as a non-money. A commodity already has value on the market, which is why it can be used as a store of value.

Just because someone is willing to accept something as arbitrary as sand or excrement as a unit of account doesn't mean I can base a structure of production on it, and doesn't mean it's sustainable. So, I get no assurance of sustainable structures of production merely by observing that some people are willing to use digits as a unit of account.

You said:

"There are no servers controlling the algorithm. It's a protocol, not a particular program, so it can run anywhere in a decentralized manner."

It seems to me that if there's nothing controlling the algorithm, then all I would need to do to exploit Bitcoin was to make a copy of all the transactions, customize the copy such that I own all the wallets, write an algorithm that checks only against my server(s), and put some Bitcoin-like "currency" on a USB and start handing it to people.

Then they start using my custom algorithm, and I can make all the Bitcoin-like currency I want.

Of course, as soon as you tell me that there will be people that can check the validity of the protocol, I'm going to respond with the "government co-opt" argument.

Bitcoin is going to bite you guys in the but. Turn back. Use commodity money, instead.

> What happens when the servers controlling the algorithm get co-opted?

This is a common misperception about Bitcoin. Since it's a peer-to-peer network, there are no servers to co-opt.

Bitcoin and bit torrent are both peer-to-peer networks that the Powers That Be hate. In 10 years, the bit torrent network has gotten larger and larger, no matter how much the Feds and their accomplices have tried to shut it down. Bitcoin as a network and as a crypto-structure are even more resilient than bit torrent is.

The only way to stop bitcoin is to either break the known laws of physics and crack the SHA256 algorithm (a mathematical impossibility at the moment) or to shut down the internet.

Well, I think they can stop bitcoin or at least push it into the underground by making it illegal and throwing any bitcoin user into jail. They don't need to know what exactly they bought or not, they only need to know if you have bitcoin SW on your computer... And most important any normal business cannot dare to accept bitcoins anymore. From this point on, bitcoin would only be useful in the black market anymore, which makes it quite useless for most people, especially for everyday stuff...

If I were the government I would wait until bitcoin gets to a certain level of use in the economy so that it also has quite a high value already (don't know maybe 100USD/bc or higher) and then I would hit it hard with making it illegal justified by reasons of money laundering and tax evasion. Think of what would happen if they did that.

I guess you don't understand basic econ 101. Why went the price of alcohol up when they made it illegal? That was because supply dropped! Not because demand went up. When the production of something is outlawed only few people/groups dare to produce it still!

Now guess what. If bitcoin is becoming illegal then this will not affect the supply of bitcoin will it? And every business that has an IRS account that did already accept bitcoin now suddenly will stop it. This means supply stays the same, and demand goes down. So again what do you think will happen?

GoldMoney is a fluff job. Yes it's nice to have you metals overseas but as a former customer the idea of fees being charged on my gold and silver as it sits in some vault were too much for me. I withdrew what I had there and bought physical metals in and around my hometown. Now with these new changes to the product I am even happier I got out when I did.